Interview with CNBC

SUBJECTS: G20, IMF, Budget

PRESENTER:

The man himself, Joe Hockey, Australian Treasurer, jetted all the way from Canberra to the District of Columbia and joins us down the pipe from DC along with our own intrepid Matt Taylor in Sydney. Mr Hockey, hope you had a good trip, hope you’re no worse for the wear. So, what’s the first thing you’re going to start arguing with all your counterparts about when you all sit down in a civil manner?

TREASURER:

Well there is no argument. We want to see the world grow. We are going to work towards delivering our goal from Sydney – that we increase global growth by 2 per cent over the next five years. Also, importantly, we have got to focus on delivering new initiatives that help to build a stronger economy, rather than simply reheating existing initiatives and I’ll be focusing on that with my colleagues.

PRESENTER:

Yep, a lot of people in attendance Treasurer, and that includes from the developed nations and some of the big emerging ones as well. We were talking to Jack Lew last night on US television, an exclusive interview with the US Treasury Secretary, he talked a lot about global issues, Mr Hockey, including China. Why don’t you take a listen?

JACK LEW:

They needed to demonstrate that it could go down as well as up in order to preserve stability in their system. I think they have demonstrated that quite clearly. It went down. They need to get back on the path of demonstrating that they are committed to moving towards a market determined exchange rate, if they want the RMB to be a world currency someday. If they want it to be a reserve currency someday, they need to demonstrate that.

PRESENTER:

Yeah, so, Treasurer Hockey, Mr Secretary Lew then also goes on to say that he would like some more transparency in the RMB exchange rate and also what the Government officials are doing about the Chinese currency. What do you make of these comments?

TREASURER:

Oh, look, I understand where Jack is coming from and they’re views he expresses privately as well as publically, so he is entirely consistent. I do note that the Chinese Government has come a very long way in a relatively short period of time in relation to the renminbiand importantly in opening up the Chinese economy. We all want it to move quicker but when you reflect carefully on what has happened over the last decade, there has been a lot of movement. Quite frankly, we should be doing what we can to encourage China to continue on the path to full deregulation of its currency and open trading in its currency and in that regard, I understand where Jack is coming from.

PRESENTER:

OK. Well, Treasurer Hockey, do you think the US is in such a great position right now that they have the authority - the right, to be telling other countries what they should be doing about their currency policy?

TREASURER:

Look, everyone is entitled to an opinion. I have opinions as well and the beauty of the G20 is that it is a forum which is providing an opportunity for Finance Ministers and Central Bank Governors to be very frank and honest with each other and importantly, a lot of the dialogue that happens, does happen behind closed doors which allows us to anticipate what is going to occur and to prepare for it. Now, the dialogue in Sydney was hugely important in helping emerging economies to understand that the US Federal Reserve was obviously taking into account some of the capital flow impacts associated with tapering, that’s a good thing. That dialogue will continue again this week. We will be dealing with issues such as the challenges of Europe, particularly some of the issues identified by Jack. But also we will be looking at IMF reform and also importantly, how we can get more private sector investment in infrastructure, not only in developed countries but also in emerging economies as well.

PRESENTER:

Sir, it seems Europe remains the one engine in the global economy that isn’t firing on all cylinders at the moment. In your assessment, should Mario Draghi quickly move to plan B and some form of asset purchase program, à la the Fed or the Bank of England? A QE program for Europe?

TREASURER:

Look I’m not going to give Mario Draghi advice over the media. Look, I understand where the challenge is. But the fact is, Europe has come back from the edge. I am actually more bullish about Europe over the medium term than some others. Simply because the fact is, it has enormous capacity and we’re seeing the United States, which has been through a pretty tough winter, have a more ambitious outlook in the near future. I think that’s positive. I am also more bullish about China than some other jurisdictions might be. So, look, things will get better, they will get better. It will take longer in some jurisdictions than others, but I have no doubt that the global economy will get better. There are some natural stabilisers in place and if you look at the medium and long term, there will be a recovery. The question is how we can facilitate that without creating dislocations that continue to create further instability in capital markets.

PRESENTER:

Treasurer, it’s Matt Taylor here in Sydney jumping in as well. It has been a pretty successful week for the Government of course, with that Japanese Free Trade Agreement. The Prime Minister was also in Seoul and is now headed to China as we just flagged. What will be the message that the Prime Minister is going to take to the Chinese leaders when he sits down with them over the next few days?

TREASURER:

Well, we want to get on with the Free Trade Agreement with China. It has been a remarkable turn around and the fact that we have signed a Free Trade Agreement with Korea in our first six months in government. We have now finalised negotiations with Japan on a free trade agreement and it would be terrific if we could nail down a Free Trade Agreement with China. We want to grow our markets and of course these negotiations have been going for years and they have ended up in a cul-de-sac. Well, we have now opened the way. This is a good thing but at the same time we need to reboot our economy in Australia with ambition, coming out from the transformation from a capital intensive construction phase in the mining and resources sector to a production phase and that’s a good thing. But now we need to reboot the remainder of the economy which is of course, 90 per cent of our economy, the services sector and all the other industries. To take advantage of growth opportunities particularly out of Asia and the free trade agreements.

PRESENTER:

Well, yeah, let’s follow up on that a little bit further. Because your next challenge will be handing down the Budget in just a month or so from now, the IMF said overnight, without bold changes to tax and government policies in the May Budget, the Australian economy could face some hurdles and that the budget would need to improve by $50 billion in 2020 to bring down debt to a safer level. What are we going to see in the Budget? Because there are a lot of reports here in Australia this morning that you’re going to raise the retirement age and that we could also see, for instance, co-payments in the healthcare system with respect to GP visits and visits to emergency rooms. Do you just want to clarify if any of those are, in fact, on the money?

TREASURER:

Well I’m not going to respond to speculation about the Budget, but we are entirely consistent in our decision making as we are with our words. The bottom line is, we were left with ongoing deficits over four years of $123 billion and a decade of deficits ahead. Debt was, if we don’t take remedial action, is going to balloon out to $667 billion, that is unsustainable in an economy that should be growing at around trend and at a time when we still have comparatively high terms of trade. So, we do need to take important decisions in the Budget that address some of the structural problems associated with decisions taken by the previous government. Those structural problems include the fact that spending was going to grow at over 3 per cent over the medium term, in real terms 3 per cent and that is clearly unsustainable, particularly with the pressures associated with an ageing population. So yes, it is going to be a budget that makes the hard decisions, but it is going to be a budget that ensures that no single part of the economy is expected to do the heavy lifting. Everyone has to help to do the heavy lifting and if we all do our fair share of heavy lifting in the Budget, all parts of the economy will benefit over the long term.

PRESENTER:

Treasurer Hockey, it is Susan here in Hong Kong once again. I want to talk about geopolitics as Australia chairs the bloc of advanced and developing economies this year. What is the view on Russia’s [inaudible]. Can you shed some light on the politics involving Russia right now with the advance in Crimea and Ukraine?

TREASURER:

Well of course, Russia will be at the table and Russia is a part of the troika that chairs the G20 having been previously the chair of the G20. Of course we are going to discuss the Ukraine, that will be an issue to be discussed and Russia will have the opportunity to contribute to that discussion as will other jurisdictions. But it is an economic forum. Whilst we obviously will discuss some of the geopolitical challenges in the Ukraine we are not going to allow it to dominate our agenda which is focused on how we can grow the global economy and, of course, engage in laying down a platform to finalise some of the regulations in the financial services area, such as the FSB’s priority plans, nailing down some new guidelines from private investment in infrastructure, focus on competition policy and free trade – they’re the things that drive a stronger global economy so we are not going to be distracted by the immediate issue in the Ukraine, but of course it will be an issue to be properly discussed.

PRESENTER:

Finally, Mr Treasurer, let’s end on the trade issue. You know, on the back of the Bi-Lat which Australia inked with Japan, there has been no lack of criticism on the part of the Americans about lowering the bar and the criticism is that some of the items under consideration don’t even approach what the TPP was talking about. Have you undercut any efficacy, efficiency of a TPP deal to come?

TREASURER:

No, we have actually done what we have a responsibility to do, and that is to finalise the agreements that we have been negotiating for years, as we have been with this Free Trade Agreement with Japan. We want to get on with opening up markets for Australia and we are strongly supportive of TPP negotiations, but you have to have the capacity to walk and chew gum at the same time and that means that if we can nail down new agreements that open access for Australia’s economy to the Asian region, well, we’ll get on with it. We will continue to be very supportive of TPP negotiations. But of course, Japan has been part of the process.